There are five members of the board of directors of Clean Environment Company (CEC). At the most
Question:
There are five members of the board of directors of Clean Environment Company ("CEC"). At the most recent quarterly board meeting, where all 5 directors were present, the board was presented with an opportunity to acquire, through a 100% stock acquisition, a synergistic company called Clean Without Fear Products, Inc. ("CWFP"). The board had a robust discussion regarding the merger and relied on information provided by the company's officers about the potential business benefits, the company's internal accountants about the financial aspects, and the company's in-house counsel regarding the legal aspects. Even though CWFP appeared to be having financial difficulties, based on the information provided by the company's advisors, the board approved the acquisition of CWFP. Six months after acquiring CWFP, CEC liquidated and dissolved the entity due to its continuing inability to make a profit. A group of shareholders of CEC have sued the board of directors claiming they breached their duty of care and cost CEC a significant amount of money, which ultimately impacted the value of their shares. Did the CEC board of directors breach its duty of care?
Auditing Cases An Interactive Learning Approach
ISBN: 978-0132423502
4th Edition
Authors: Steven M Glover, Douglas F Prawitt